Public spending cuts will mean job losses in the private and public sectors

Today we have published research which looks at the relationship between public spending and jobs increases since 1997-98. Our analysis concludes that a 10% cut on 2007-08 spending levels (the most recent period we have complete figures for) would lead to a reduction of around 200,000 public sector posts.

But it’s not just public sector employees (and service users) who would be affected. Around 29% of public sector expenditure goes directly to the private sector, and a ten per cent cut of these budgets would mean a reduction of around £16.8 billion in private sector investment from public funds. This would have an inevitable impact on private sector employment.

Data also show that in recent years the rate of increase in the public sector pay bill has been falling, while the rate of increase in public sector money provided to the private sector has been going up – further evidence that cuts will impact on private companies as well as public services. In fact between 2004-05 (a period that saw the relationship between public sector spending and job creation weaken) and 2007-08 the increase in public sector money spent in the private sector was greater than the increase in the budget for public sector pay.

Our research also looks at where investment and public sector job gains have been concentrated. It turns out that between 1997-98 and 2007-08 health and education have seen the steepest job increases (390,000 and 275,000 respectively), leaving the rest of the public sector with a net loss of 38,000 posts. And, unsurprisingly, investment has also been concentrated in these areas. During the same period health spending increased by 1.9 percentage points rising to 7.2% of GDP, and education spending rose by 0.9 points taking spending in this area to 5.5% of GDP. It therefore seems likely that a 10% cut would inevitably impact upon these service areas – reducing private as well public sector employment: in 2007-08 procurement in health totalled £66.8 billion and in education was £16.2 billion.

Although (on this occassion) we haven’t quantified further costs from job losses, there would be well known additional impacts for Government resulting from cuts of this scale. The increased social security expenditure necessary to support the newly unemployed would be large, the lost tax revenues high and the reduction in demand significant – all would have a damaging impact on any recovery. Our view is very clear – sweeping spending cuts are not an easy answer to reducing the budget deficit. Such large reductions in public expenditure would inevitably impact on the wider economy, limit growth and have the overall effect of making the deficit worse.

Written by Nicola Smith

I’m Head of the Economic and Social Affairs Department at the TUC. I also represent the TUC on the Social Security Advisory Committee. My posts may therefore range from the environment to the welfare state via macro-economic policy but will ine…